A fall in rent free periods being offered across the London office market have led to net effective rents rising faster than headline rents.  Net effective rents for prime space continued to rise in Q1 2023 and are at around 0.5% of their pre-pandemic levels.  Headline rents, across London’s sub markets, however, have been somewhat static, despite an ongoing lack of supply. Some districts have seen an increase, most notably core City of London (3.4%) and Soho (2.7%), but overall growth in prime central London headline rents sat at a modest 0.4% during this quarter.

Over the past 12 months to Q1 2023, prime headline rents across central London increased by an average of 2.6%. Across the four key submarkets, the strongest rental growth was in the City at 3.6%, followed by the West End at 3.4%. Docklands saw growth of 1.85% over the year, while Midtown increased by 0.8%.

Looking at the net effective rent based on a five year lease the overall Central London figures mask significant variations by sub-market. Over the last four years there has been a very strong recovery in the West End to 4.4% above their pre-pandemic peak. In Midtown effective rents have recovered to be in line with their pre-pandemic peak whilst in the City of London, growth to Q1 has taken the net effective rent to just 0.8% below their peak.

Net effective rents fell further in Docklands than elsewhere during the pandemic, and the recovery has been less rapid. With no change in the first-quarter this year, five-year net effective rents remain 6% below their pre-pandemic peak.